RATTAN & BURI INTERIORS, INC.

and
[G.R. No. 138145, June 15, 2006]
SPS. ESMERALDO and ELIZABETH D. SUICO,
Petitioners,
-versus- -

COURT OF APPEALS and METROPOLITAN BANK

and TRUST CO., INC.,
Respondents.
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FACTS:
Metrobank filed an action for the Recovery of a Sum of Money arising from the obligations of SRBII and the Suico spouses on
their export bills purchases. SRBII and the Suico spouses filed their Answer contending that their indebtedness are secured by
a real estate mortgage and that the value of the mortgaged properties is more than enough to answer for all their obligations
to Metrobank.

The trial court dismissed Metrobank’s complaint declaring that all obligations of defendants to plaintiffs incurred either as
principal, surety or guarantor, which matured and had become due and demandable on the foreclosure of the Real Estate
Mortgage are already fully paid by the mortgage security.

On appeal, the CA ruled that since the proceeds from the foreclosure sale of the mortgaged properties amounted only
to P10,383,141.63, the same is not sufficient to answer for the entire obligation of petitioners to Metrobank and that the latter
may still recover the deficiency of P16,585,286.27 representing the value of the export bills purchased by herein petitioners.

Hence, this petition.

ISSUES:
I.
THE RESPONDENT CA ERRED IN NOT HOLDING THAT THE REAL ESTATE MORTGAGE DATED SEPTEMBER 5, 1991
SERVED AS THE COLLATERAL FOR ALL THE OBLIGATIONS OF THE PETITIONERS.

II.
THE RESPONDENT CA ERRED IN ORDERING THE PETITIONERS TO PAY SOLIDARILY THE AMOUNT
OF P16,585,286.27 REPRESENTING THE PRINCIPAL OBLIGATION AND INTEREST AS OF OCTOBER 31, 1992 AND TO
PAY AN INTEREST ON THE PRINCIPAL SUM OF P12,218,866,23 AT THE RATE OF 26% PER ANNUM FROM
NOVEMBER 1, 1992 UNTIL THE SAID AMOUNTS ARE FULLY PAID.
 III.
THE RESPONDENT CA ERRED IN HOLDING THAT PETITIONERS SUICO SPOUSES ARE SOLIDARILY LIABLE WITH
PETITIONER CORPORATION FOR PAYMENT OF INTEREST PRIOR TO THE FILING OF THE COMPLAINT.

IV.
THE RESPONDENT CA ERRED IN NOT TAKING COGNIZANCE THAT RES JUDICATA HAD ALREADY SET IN, IN VIEW OF
THE TERMINATION OF THE PROCEEDINGS IN EXTRAJUDICIAL FORECLOSURE SALE.

V.
THE RESPONDENT CA GRAVELY ERRED IN DECIDING THE CASE BASED ON AN ISSUE NOT RAISED IN THE
PLEADINGS OR ADMISSIONS OF THE PARTIES.

HELD:
I.
As to the first assigned error, the Court agrees with petitioners that all their obligations, including their indebtedness
arising from their purchase of export bills, are secured by the Real Estate Mortgage contract.

II.
With respect to the second assigned error, the petitioners’ contention that they are not liable to pay since there is no
showing that the principal debtor cannot pay, the time-honored rule is that the surety obligates himself to pay the
debt, if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his
obligation. Thus, creditor Metrobank can go directly against the surety although the principal debtor is solvent and is
able to pay or no prior demand is made on the principal debtor because the liability of the surety is direct, primary
and absolute; or equivalent to that of a regular party to the undertaking.
III.
The same principle applies with respect to the payment of interest. Since the Suico spouses obligated themselves to be
solidarily bound with SRBII, it follows that they are also liable to pay the interest.

IV.
As to the fourth assigned error, petitioners assert that Metrobank is guilty of splitting a single cause of action when it
filed its complaint for a sum of money on November 5, 1992 and, thereafter, on November 18, 1992, foreclosed the
properties subject matter of the mortgage. Petitioners contend that in the event that a mortgage debtor fails to pay his
obligation, the mortgage creditor has the option to file an action to collect the indebtedness or to foreclose the
property subject matter of the mortgage. However, the creditor may not pursue both remedies. Petitioners contend
that the present action for a sum of money is already barred by res judicata by reason of the extrajudicial foreclosure
sale of the mortgaged properties, as evidenced by the execution of the Definite Deed of Sale in favor of Metrobank on
January 21, 1994.

Respondent bank asserts that there is no splitting of cause of action because the complaint it filed against petitioners
is simply for the purpose of collecting the balance of the latter’s obligation which was not covered by the proceeds of
the sale of the mortgaged properties.

“The rule is settled that a mortgage creditor may, in the recovery of a debt secured by a real estate mortgage, institute
against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. These
remedies available to the mortgage creditor are deemed alternative and not cumulative. An election of one remedy
operates as a waiver of the other. A rule which would authorize the plaintiff to bring a personal action against the
debtor and simultaneously or successively another action against the mortgaged property would result in multiplicity
of suits so offensive to justice and obnoxious to law and equity. Hence, a remedy is deemed chosen upon the filing of
the suit for collection or upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to the
provisions of Rule 68 of the Rules of Court. As to extrajudicial foreclosure, such remedy is deemed elected by the
mortgage creditor upon filing of the petition not with any court of justice but with the office of the sheriff of the
province where the sale is to be made, in accordance with the provisions of Act No. 3135, as amended by Act No. 4118.

Records show that the complaint for a sum of money was filed with the RTC on November 5, 1992. On the other hand,
there is no direct evidence to show when respondent bank filed a petition with the provincial sheriff of Cebu for the
extrajudicial foreclosure of the mortgaged properties. The petition for extrajudicial foreclosure of the mortgaged
properties was not presented in evidence. What appears on record is that the auction sale of the foreclosed properties
was conducted on November 17, 1992. However, as mentioned earlier, the remedy of extrajudicial foreclosure is
deemed chosen not on the date of foreclosure sale but upon the filing of the petition for foreclosure with the office of
the sheriff of the province where the sale is to be made. Hence, for purposes of determining which remedy was first
elected – the personal action for debt or the real action for foreclosure – there is a need to determine when the
respondent bank filed a petition for extrajudicial foreclosure.

The Certificate of Sale executed by the Ex-Officio Provincial Sheriff indicates that the extrajudicial foreclosure sale was
conducted on November 17, 1992. In the absence of evidence to the contrary, the Court presumes that the sheriff
regularly performed his duties and that the ordinary course of business had been followed in the conduct of the
auction sale.

Hence, it is reasonable to assume that the requirements regarding notice and publication prior to the conduct of the
sale have been complied with. Going back 20 days from November 17, 1992, which was the date the auction sale was
conducted, the petition for extrajudicial foreclosure could have been filed by respondent bank not later than October
27, 1992. Considering that the complaint for a sum of money was only filed on November 5, 1992, the only conclusion
that can be arrived at is that respondent bank first elected to avail of the remedy of extrajudicial foreclosure. Thus, by
availing of such remedy it is deemed to have waived its right to file an ordinary case for collection.”

V.
As to the last assigned error, petitioners contend that the CA erred in ruling that the bank’s cause of action is based on
its claim for a deficiency judgment arising from insufficient proceeds of the foreclosure sale of the mortgaged
properties; Metrobank’s cause of action is for a sum of money; at the time of the filing of the complaint, there is no
deficiency judgment to speak of because the complaint was filed on November 5, 1992 while the foreclosure sale was
only held on November 18, 1992; the complaint was not amended to include recovery of the deficiency as part of its
cause of action.

While respondent bank contends that the CA is correct in ruling that Metrobank is entitled to deficiency judgment
considering that petitioners themselves raised the issue that the real estate mortgages they executed secured all their
obligations with respondent bank. Respondent argues that the issue on deficiency judgment necessarily arose because
the proceeds of the foreclosure sale are not sufficient to answer for all the obligations of petitioners to respondent
bank. In any case, respondent bank contends that the CA is clothed with ample authority to resolve an issue even if it
is not raised if such resolution is necessary in arriving at a just decision.

“The question is: may the complaint for a sum of money filed by respondent bank be considered as a suit for the
recovery of deficiency in petitioners’ obligation?

The Court rules in the negative.

It is undisputed that the suit filed by respondent bank with the trial court was a personal action for the collection of a
sum of money. The complaint was premised on the refusal of herein petitioners to pay and accept the value of the
drafts or bills of exchange and the subsequent failure of petitioners to answer for the value of the said drafts plus
interest upon notice and demand sent by respondent bank. There was no mention, either in the body of the complaint
or in the prayer, for the recovery of the balance of petitioners’ obligations which were not covered by the foreclosure
sale. In fact, the foreclosure sale was not even mentioned. In other words, in filing the complaint with the RTC,
respondent bank was not suing for any deficiency. Understandably, the respondent bank could not have claimed such
deficiency because, as correctly observed by petitioners, at the time of the filing of the complaint on November 5,
1992, the foreclosure sale is yet to be conducted. Hence, the complaint cannot, in any way, be construed as an action
for the recovery of deficiency in petitioners’ obligation. It is actually an ordinary action for collection which is barred
by reason of respondent’s prior election of the remedy of foreclosure. Thus, the Court is left with no recourse but to
sustain the dismissal of the complaint by the RTC subject to the right of Metrobank to recover the alleged deficiency.
It must be emphasized that as aptly observed by petitioners, Metrobank did not amend its complaint accordingly.

Given the fact that the proceeds of the auction sale were not sufficient to answer for the entire obligation of
petitioners to respondent bank, the latter still has the right to recover the balance due it after applying the proceeds of
the sale. We agree with the CA that where the mortgage creditor chooses the remedy of foreclosure and the proceeds
of the foreclosure sale are insufficient to cover the debt, the mortgagee is entitled to claim the deficiency from the
debtor. The law gives the mortgagee the right to claim for the deficiency resulting from the price obtained in the sale
of the property at public auction and the outstanding obligation at the time of the foreclosure proceedings. This rule
is based on the principle that the mortgage is only a security and not a satisfaction of the mortgagor’s entire
obligation. Moreover, unlike in pledge and chattel mortgage on a thing sold on installment, where the Civil Code
expressly forecloses the right of creditors to sue for any deficiency resulting from the sale of the property given as a
security for the obligation, there is nothing in the law governing extrajudicial foreclosures, which expressly or
impliedly prohibits the recovery of such deficiency. If the legislature had intended to deny the creditor the right to sue
for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law would
expressly so provide. Absent such a provision in Act. No. 3135, as amended, the creditor is not precluded from taking
action to recover any unpaid balance on the principal obligation simply because he chose to extrajudicially foreclose
the real estate mortgage. Hence, in the present case, the Court’s dismissal of the complaint should be without
prejudice to the filing of another action for the recovery of the balance left in petitioners’ obligation after the
foreclosure sale of the mortgaged properties.

The CA or this Court has no jurisdiction to rule on the amount of deficiency that is yet to be claimed and proved in the
proper forum by Metrobank.”

WHEREFORE, the petition is partially GRANTED. The assailed Decision and Resolution of the CA
are REVERSED and SET ASIDE. The Decision of the RTC is REINSTATED with MODIFICATION to the effect that the
portion of the Decision, declaring that "all obligations of defendants to plaintiffs incurred by the former either as
principal, surety or guarantor, which matured and had become due and demandable on the date of the foreclosure of
the Real Estate Mortgage are considered fully paid by the mortgage security", is DELETED subject to the right of
Metrobank to recover the amount of deficiency in a proper action in the proper court.

No pronouncement as to cost.

SO ORDERED.